DeFi for Bitcoin: How Wrapped BTC Works on Avalanche

DeFi for Bitcoin: How Wrapped BTC Works on Avalanche. Bitcoin (BTC), the original and most valuable cryptocurrency, was designed as a decentralized digital store of value. Its blockchain can’t support complex DeFi functions. Wrapped tokens solve this by allowing BTC holders to use their assets on smart contract-enabled platforms like Avalanche.

One of the most popular implementations of this concept is Wrapped BTC (wBTC). By bridging BTC to Avalanche, users can unlock yield opportunities, liquidity provisioning, lending, and more—all without having to sell their Bitcoin. In this article, we’ll explore how Wrapped BTC works on Avalanche, the mechanisms behind it, and why it’s an essential bridge between Bitcoin and DeFi.

What Is Wrapped BTC?

Wrapped BTC (wBTC) is a tokenized version of Bitcoin that exists on other blockchains—most commonly Ethereum and Avalanche. Each wBTC is backed 1:1 by real BTC held in custody. This ensures that wBTC always maintains the same value as Bitcoin while allowing it to be used within ecosystems that support smart contracts.

Wrapped BTC is not mined; it is minted and burned by custodians and merchants who lock BTC and issue equivalent tokens on other blockchains.

Why Bring Bitcoin to Avalanche?

Bitcoin dominates in market capitalization, but its network is limited to basic transaction types. Avalanche, on the other hand, offers high throughput, low fees, and full support for Ethereum-compatible smart contracts. By bringing BTC onto Avalanche, users gain access to:

• DeFi Lending & Borrowing – Supply wBTC on platforms like Aave or Benqi to earn interest.
• Liquidity Provisioning – Add wBTC to AMMs like Trader Joe or Pangolin.
• Synthetic Assets & Yield Farming – Use wBTC in advanced DeFi strategies.
• Fast and Low-Cost Transactions – Avalanche C-Chain provides near-instant finality and lower gas costs than Ethereum.

How Wrapped BTC Works on Avalanche

Locking Bitcoin

The process begins when a user wants to wrap their BTC. This typically happens through a custodial or decentralized bridge. The most popular bridges that support BTC to Avalanche include

• Multichain
• Portal by Wormhole
• BTC.b (via Avalanche Core Bridge)

In this process:

• The user sends BTC to a verified custodian (for example, BitGo in the case of ERC-20 wBTC).
• The BTC is locked in a secure wallet.
• An equivalent amount of wBTC (or BTC.b) is minted on Avalanche.

Minting Wrapped BTC

After the BTC is locked, a wrapped version of the token is minted on Avalanche’s C-Chain, which is compatible with Ethereum’s EVM. The token is typically named BTC.b or wBTC.e, depending on the bridge used.

• BTC.b is Avalanche’s native wrapped Bitcoin asset, launched by the Avalanche Core team.
• wBTC.e is bridged from Ethereum to Avalanche and follows the ERC-20 wBTC standard.

These tokens are fully usable across the Avalanche DeFi ecosystem.

Using Wrapped BTC in DeFi

Once users have wBTC on Avalanche, they can interact with various DeFi protocols just as they would with any other token:

• Deposit BTC.b into Aave or Benqi to earn lending interest.
• Provide liquidity to pairs like wBTC.e-AVAX on Trader Joe and earn fees and farming rewards.
• Collateralize BTC.b to borrow stablecoins such as USDC or DAI.

Wrapped BTC retains the value of Bitcoin but gains the flexibility of Avalanche’s DeFi infrastructure.

Redeeming for Real BTC

If a user wants to convert back to native BTC, they can use the same bridge or protocol in reverse:

• Burn the wrapped token on Avalanche.
• Withdraw the equivalent BTC from the custodian or bridge on the Bitcoin network.

Security and Custodianship

The security of Wrapped BTC depends on the bridge used:

• Centralized Bridges (e.g., BitGo-based wBTC) offer professional custodianship but introduce custodial risk.
• Decentralized Bridges (e.g., BTC.b via Avalanche Core) use smart contracts and multi-signature protocols, reducing trust assumptions but still face technical challenges.

Always research the security model, audits, and history of the bridge you’re using to ensure your Bitcoin is safely wrapped and redeemed.

Advantages of Using Wrapped BTC on Avalanche

• DeFi Access – Unlock DeFi yields without selling BTC.
• High Performance – Avalanche’s sub-second finality and low fees improve user experience.
• Cross-Chain Compatibility – Easily bridge between Bitcoin, Ethereum, and Avalanche ecosystems.
• Ecosystem Growth – As Avalanche expands, more DeFi apps are integrating wrapped BTC assets.

Final Thoughts

Wrapped BTC is a powerful innovation that expands Bitcoin’s utility far beyond simple value transfer. On Avalanche, it enables BTC holders to tap into fast, low-cost DeFi opportunities without relinquishing ownership of their Bitcoin. Whether through BTC.b or wBTC.e, the process of wrapping BTC opens up a new frontier where Bitcoin meets smart contracts—and DeFi becomes truly multichain.

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